The rate schedule every business should know
Singapore's carbon tax was introduced in 2019 at S$5 per tonne of CO2 equivalent. Most businesses noticed little at the time. Since then, the government has set a progressive schedule that makes the carbon tax one of the most predictable and significant drivers of electricity cost increases through 2030:
- 2019 to 2023: S$5 per tonne
- 2024 to 2025: S$25 per tonne
- 2026 to 2027: S$45 per tonne
- 2028 to 2030: S$50 to S$80 per tonne (target range)
The jump from S$25 to S$45 that took effect on 1 January 2026 is an 80 percent increase in a single step. For a business spending S$30,000 a month on electricity, the carbon tax component of that bill increased by roughly S$900 a month from this change alone, before any movement in wholesale energy prices.
You are not directly liable: why is it on your bill?
The Carbon Pricing Act imposes the carbon tax directly on facilities emitting 25,000 tonnes of CO2 equivalent or more per year. Approximately 50 facilities in Singapore meet this threshold, primarily large power generation companies and heavy industrial plants. Most commercial and industrial businesses (offices, retail premises, logistics facilities, hotels) are not direct carbon tax payers.
The reason it appears on your bill is the pass-through chain. Power generators are direct carbon tax payers. They incorporate that cost into the wholesale price at which they sell electricity into the National Electricity Market of Singapore (NEMS). Retailers buy from that wholesale market and pass the cost through to you. The carbon tax is not a line item the government collects from you directly: it reaches you embedded in the price of every kilowatt-hour you consume.
How to calculate your carbon tax exposure
The formula is straightforward:
Carbon Tax Charge = Electricity consumed (kWh) × Grid Emission Factor × Carbon Tax Rate
The Grid Emission Factor (GEF) is published annually by the Energy Market Authority. The 2024 figure is 0.402 kg CO2 per kWh, reflecting Singapore's predominantly gas-fired generation mix. At the 2026 carbon tax rate of S$45 per tonne:
A business consuming 10,000 kWh per month pays: 10,000 × 0.402 × 0.045 = S$180.90 per month in carbon tax component alone. At the 2024 to 2025 rate of S$25 per tonne, the same business paid S$100.50. The 2026 increase adds approximately S$80 per month, or S$960 per year, on a 10,000 kWh monthly account.
Scaling this up: a manufacturing facility consuming 500,000 kWh per year will see its carbon tax component rise from approximately S$5,025 per year (at S$25 per tonne) to S$9,045 per year (at S$45 per tonne). That S$4,020 annual increase arrives with no change to consumption and no change to wholesale energy prices.
Every S$5 per tonne increase in the carbon tax raises electricity costs by approximately 0.2 cents per kWh. The 2026 step (S$20 increase) adds roughly 0.8 to 1.0 cents per kWh to your effective rate. By 2030 at S$80 per tonne, the carbon component alone could add 3.2 to 3.5 cents per kWh above 2023 levels.
How your contract structure determines your exposure
This is the most commercially important point for procurement and finance leads. Different contract structures handle carbon tax pass-through very differently:
Fixed-rate contracts
The retailer has priced the carbon tax into your fixed rate at signing. If the carbon tax increases during your contract term, the retailer absorbs the additional cost, your rate does not change until renewal. Fixed-rate contracts offer full protection against mid-term carbon tax step changes. The trade-off is that when you renew, your new fixed rate will reflect the higher carbon tax level, and you will likely see a step-change in price at renewal.
Discount-off-tariff contracts
Your effective rate tracks SP Group's regulated tariff minus your agreed discount. SP Group's regulated tariff is revised quarterly and already incorporates the prevailing carbon tax rate. When the carbon tax increases, the regulated tariff adjusts upward and your bill moves with it, less your discount. You have tariff transparency but no carbon insulation.
Bespoke or negotiated contracts
Contract language varies significantly. Some bespoke contracts contain explicit carbon tax adjustment clauses that allow the retailer to revise your rate if the legislated carbon tax changes. Others lock the carbon cost into the base rate for the contract term. The specific clause wording is the most consequential line in your contract for cost certainty through 2030. If your contract contains a pass-through clause, understand exactly what triggers it and whether it applies to rate changes, GEF changes, or both.
What to look for in your electricity contract right now
- Carbon tax adjustment clause: Does the contract allow your retailer to pass through carbon tax increases mid-term, or is the contracted rate fixed regardless of carbon tax changes? This single clause determines how much of the 2026 and subsequent increases you absorb immediately versus at renewal.
- GEF reference: Which Grid Emission Factor version is used in billing, and when is it updated? The GEF changes annually, and a shift in GEF affects your carbon cost even if the tax rate stays constant.
- Renewal timing relative to carbon tax steps: If your contract expires in late 2027, you will be renewing just before a potential further rate increase in 2028. Building this into your contracting strategy, whether by locking in longer terms at current rates or building flexibility for early renewal, is worth planning now.
Looking ahead to 2030
The published schedule toward S$50 to S$80 per tonne by 2030 means this is not a one-off adjustment. Businesses that treat electricity as a fixed cost are going to face a series of compounding increases driven entirely by carbon tax escalation, independent of wholesale gas price movements. Energy efficiency investments (reducing consumption) directly reduce carbon tax exposure. So does timing contract renewals to lock in fixed rates before the next step change takes effect.
The carbon tax is the one electricity cost driver that is entirely predictable in direction if not in final magnitude. Businesses that plan for it now are in a far better position than those who discover the impact at their next renewal.
If you would like to understand how the carbon tax trajectory is affecting your specific electricity costs, and whether your current contract structure is managing that exposure well, get in touch for a free bill review.